Illinois Policy Institute Proposes Spending Cap, Pension Reform to End Perpetual Budget Deficits

Illinois Forward 2026 Plan Could Save Taxpayers Nearly $27 Billion By 2030

Illinois faces a projected $3 billion deficit in 2026 and a $5 billion shortfall by 2029. The Illinois Policy Institute released Illinois Forward 2026, a comprehensive fiscal plan to balance the state budget without raising taxes.

The alternative to structural reform is big deficits. Even after receiving $35 billion in unexpected revenue during the pandemic, Illinois state government faces persistent budget challenges.

According to the institute, the state used some of that excess money wisely. State leaders used some of the excess money for fiscal repairs. But most of the money, $21.5 billion, was used to pad rising spending.

The institute found Illinois annual budget has ballooned by over $17 billion since 2015. State budget expanded from about $35.4 billion in fiscal year 2015 to approximately $53.07 billion in fiscal year 2025.

The state held a general funds deficit from 2002 until 2023. The only reason the deficits finally ended was massive infusion of federal pandemic relief and unexpected revenue growth.

Spending Cap Linked to Inflation Would Create At Least $1 Billion in Savings

Illinois Forward 2026 proposes a spending cap linked to the projected rate of inflation. The plan uses common-sense reforms to save taxpayers an expected $26.7 billion by 2030.

The plan includes:

• Enact responsible growth linked to projected inflation, creating at least $1 billion in savings from the 2026 budget
• Right-size taxpayer costs for state worker health insurance
• Enacting government pension reform

Illinois Forward 2026 solutions include expenditure savings and spending cap, school district efficiency, and pension reform.

Pension Reform Would Allow Future Benefit Growth to Be Adjusted to Sustainable Levels

The institute proposes amending the state constitution so earned benefits remain an ironclad contract. Future benefit growth can be adjusted to sustainable and affordable levels.

The plan suggests pegging cost-of-living adjustments to inflation. This would allow future benefit growth to be adjusted to sustainable and affordable levels.

School District Efficiency Would Invest in Classrooms, Students and Teachers

The plan proposes reducing excessive school district administrative costs. This would allow Illinois to grow state spending more slowly while boosting student outcomes.

This would save $2.8 billion over five years.

Health Insurance Costs Would Be Right-Sized to Private-Sector Levels

The plan proposes adjusting the taxpayer burden for state health insurance plans to bring costs more in line with what private-sector workers receive.

This would save $2.7 billion over five years.

Without Long-Nneeded Structural Financial Reforms State Finances Will Worsen

Illinois Forward 2026 offers a plan to meaningfully reduce costs without burdening taxpayers. Without long-needed structural financial reforms, the state finances will end up in an even worse position than before 2020.

The Illinois Policy Institute released the plan ahead of Governor Pritzkers 2026 budget proposal. The release comes ahead of Governor J.B. Pritzkers 2026 budget proposal and State of the State address.

Comparison to Historical Tax Hikes Highlights Need for Fiscal Reform

The state has enacted numerous tax hikes over the years. These include:

• Enacting the two largest income tax hikes in state history in 2011 and 2017
• Passing 20 new tax and fee hikes totaling $4.6 billion in 2019
• Proposing a $3.6 billion income tax hike in 2020
• Pushing a $500 million to $1 billion tax hike on small businesses in 2021
• Proposing a $934 million increase in taxes in 2022
• Enacting $1.1 billion in tax hikes in 2024

Illinois already has among the highest state and local tax rates in the nation. Some of the highest property taxes drive away residents and businesses.

Pursuing Reforms Would Eliminate $22 Billion Looming Cumulative Deficit

The institute estimates pursuing these reforms would save the state more than $26.7 billion during the next five years. This would eliminate the $22 billion looming cumulative deficit.

The plan would provide the state with an extra $4.5 billion in revenue. These surpluses could help substantially strengthen the state finances.

The Government Finance Officers Association recommends having enough in reserve to run the state for 60 days. This would mean increasing the rainy-day fund from its current $2.3 billion to $8.73 billion.

Contact Information

For interviews or comments, contact media at illinoispolicy.org or call 312-607-4977.